Dynagas LNG Partners LP, an owner and operator of liquefied natural gas carriers, announced its results for the three and six months ended June 30, 2023.
Half year Highlights:
- Net Income and Earnings per common unit (basic and diluted) of $24.0 million and $0.50, respectively;
- Adjusted Net Income(1) of $12.4 million and Adjusted Earnings(1) per common unit (basic and diluted) of $0.18;
- Adjusted EBITDA(1) $46.6 million;
- 95.8% fleet utilization(2).
Quarter Highlights:
- Net Income and Earnings per common unit (basic and diluted) of $14.4 million and $0.31, respectively;
- Adjusted Net Income(1) of $5.8 million and Adjusted Earnings(1) per common unit (basic and diluted) of $0.08;
- Adjusted EBITDA(1) $23.0 million;
- 91.7% fleet utilization(2);
- Declared and paid a cash distribution of $0.5625 per unit on its Series A Preferred Units (NYSE: “DLNG PR A”) for the period from February 12, 2023 to May 11, 2023 and $0.546875 per unit on the Series B Preferred Units (NYSE: “DLNG PR B”) for the period from February 22, 2023 to May 21, 2023;
- Entered into new time charter party agreements for the Clean Energy and the Arctic Aurora with Rio Grande LNG, LLC (“Rio Grande”), a subsidiary of NextDecade Corporation (NASDAQ: “NEXT”), adding approximately $270 million to the Partnership’s revenue backlog. The Clean Energy will be employed for a time charter period of about two years, commencing between March – May 2026 following the expiration of the vessel’s existing time charter to SEFE Marketing & Trading. The Arctic Aurora will be employed for a time charter period of about seven years, commencing between September – November 2026 following the expiration of the vessel’s existing time charter to Equinor ASA; and
- Commenced the scheduled dry-dock of the Yenisei River, Lena River and Arctic Aurora including installation of ballast water treatment equipment in accordance with current regulations.
(1) Adjusted Net Income, Adjusted Earnings per common unit and Adjusted EBITDA are not recognized measures under U.S. GAAP. Please refer to Appendix B of this press release for the definitions and reconciliation of these measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP and other related information.
(2) Please refer to Appendix B for additional information on how we calculate fleet utilization.
Subsequent Events:
- Declared a quarterly cash distribution of $0.5625 on the Partnership’s Series A Preferred Units for the period from May 12, 2023 to August 11, 2023, which was paid on August 14, 2023 to all preferred Series A unit holders of record as of August 7, 2023;
- Declared a quarterly cash distribution of $0.546875 on the Partnership’s Series B Preferred Units for the period from May 22, 2023 to August 21, 2023, which was paid on August 22, 2023 to all preferred Series B unit holders of record as of August 15, 2023; and
- Completed the scheduled dry-dock of the Yenisei River, including installation of ballast water treatment equipment in accordance with current regulations.
CEO Commentary:
We are pleased to report the results for the three and six months ended June 30, 2023.
For the second quarter of 2023, we reported Net Income of $14.4 million, Earnings per common unit of $0.31, Adjusted Net Income of $5.8 million and Adjusted EBITDA of $23.0 million.
All six LNG carriers in our fleet operate under their respective long-term charters with international gas companies with an average remaining contract term of approximately 7.4 years.
Pursuant to our strategy of employing our vessels on multi-year time charters with international energy companies, we are pleased to have entered into new long term time charter party agreements for the Clean Energy and the Arctic Aurora with Rio Grande LNG, LLC, a subsidiary of NextDecade Corporation for a period of about 2 years and 7 years, respectively. These time charters have increased our estimated contracted revenue backlog which is estimated to be $1.2 billion as of September 14, 2023. Notwithstanding any unforeseen events and scheduled vessel dry dockings our fleet is now fully employed through the end of 2027.
We have remained committed to our strategy of creating equity value through reducing debt and have since September 2019, repaid $230.4 million in debt, which includes two voluntary loan prepayments of $18.7 million and $31.3 million, effected on October 12, 2022 and March 27, 2023, respectively, in agreement with the lenders of our $675 million credit facility. Our current debt outstanding is $444.6 million.
Since December 31, 2019 we have reduced our net leverage ratio from 6.6 to 4.3, while also increasing our book equity value by 41%, to $442.2 million.
We believe that increasing market sentiment that LNG is a necessary fuel for managing global emissions, as well as, ensuring energy security, will continue to generate demand for LNG shipping in the long- term.
In light of these developments, we believe that the outlook for LNG shipping and the Partnership remains positive.
Russian Sanctions Developments
Due to the ongoing Russian conflict with Ukraine, the United States (“U.S.”), European Union (“E.U.”), Canada and other Western countries and organizations have announced and enacted numerous sanctions against Russia to impose severe economic pressure on the Russian economy and government.
As of today’s date:
- Current U.S. and E.U. sanctions regimes do not materially affect the business, operations or financial condition of the Partnership and, to the Partnership’s knowledge, its counterparties are currently performing their obligations under their respective time charters in compliance with applicable U.S. and E.U. rules and regulations; and
- Sanctions legislation continually changes and the Partnership continues to monitor such changes as applicable to the Partnership and its counterparties.
The full impact of the commercial and economic consequences of the Russian conflict with Ukraine is uncertain at this time. The Partnership cannot provide any assurance that any further development in sanctions, or escalation of the Ukraine conflict more generally, will not have a significant impact on its business, financial condition or results of operations. Please see the section of this press release entitled “Forward Looking Statements.”
Financial Results Overview:
| Three Months Ended | Six Months Ended | ||||||||||||
| (U.S. dollars in thousands, except per unit data) | June 30, 2023 (unaudited) | June 30, 2022 (unaudited) | June 30, 2023 (unaudited) | June 30, 2022 (unaudited) | |||||||||
| Voyage revenues | $ | 37,653 | $ | 33,419 | $ | 74,916 | $ | 66,679 | |||||
| Net Income | $ | 14,430 | $ | 11,117 | $ | 24,030 | $ | 34,999 | |||||
| Adjusted Net Income (1) | $ | 5,842 | $ | 9,062 | $ | 12,361 | $ | 19,101 | |||||
| Operating income | $ | 18,298 | $ | 12,115 | $ | 37,642 | $ | 24,672 | |||||
| Adjusted EBITDA(1) | $ | 23,015 | $ | 22,940 | $ | 46,579 | $ | 45,878 | |||||
| Earnings per common unit | $ | 0.31 | $ | 0.22 | $ | 0.50 | $ | 0.79 | |||||
| Adjusted Earnings per common unit (1) | $ | 0.08 | $ | 0.17 | $ | 0.18 | $ | 0.36 |
(1) Adjusted Net Income, Adjusted EBITDA and Adjusted Earnings per common unit are not recognized measures under U.S. GAAP. Please refer to Appendix B of this press release for the definitions and reconciliation of these measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.
Three Months Ended June 30, 2023 and 2022 Financial Results
Net Income for the three months ended June 30, 2023 was $14.4 million as compared to a Net Income of $11.1 million for the corresponding period of 2022, which represents an increase of $3.3 million, or 29.7%. The increase in Net Income for the three months ended June 30, 2023 was mainly attributable to the decrease in dry-docking and special survey costs, attributable to the scheduled dry-docks of the Clean Energy and the Amur River, which were completed in April 2022 and July 2022, respectively, as well as to the increase in the deferred revenue amortization resulting from the escalating time charter rate which relates to the new time charter party agreement with Equinor ASA for the employment of the Arctic Aurora, which will commence in September 2023. The increase in the net income was partly offset by the increase in the interest and finance costs.
Adjusted Net Income (a non- GAAP financial measure) for the three months ended June 30, 2023 was $5.8 million compared to $9.1 million for the corresponding period of 2022, which represents a net decrease of $3.3 million, or 36.3%. This decrease is mainly attributable to the increase of interest and finance costs compared to the corresponding period of 2022 which excludes the effect of the realized gain of $6.1 million on the interest rate swap in the period. Including the effect of the realized gain on our interest rate swap, Adjusted Net Income and Adjusted Earnings per common unit for the three months ended June 30, 2023 amounted to $12.0 million and $0.25, respectively.
Voyage revenues for the three months ended June 30, 2023 were $37.7 million as compared to $33.4 million for the corresponding period of 2022, which represents a net increase of $4.3 million or 12.9%, which is mainly attributable to the abovementioned increase in the deferred revenue amortization relating to the new time charter party agreement of the Arctic Aurora, as well as to the increase in available days of the Clean Energy and the Amur River for the three months ended June 30, 2023 compared to the corresponding period of 2022, due to their abovementioned scheduled dry-docks completed in 2022.
The Partnership reported average daily hire gross of commissions(1) of approximately $61,800 per day per vessel in the three-month period ended June 30, 2023, compared to approximately $62,860 per day per vessel for the corresponding period of 2022. The Partnership’s vessels operated at 91.7% fleet utilization during the three-month period ended June 30, 2023 due to unscheduled repairs of the OB River the cost of which is partly covered under the vessel’s hull and machinery and loss of hire insurances. The net effect of the abovementioned damage on the Partnership’s results for the three months ended June 30, 2023 is approximately $0.4 million.
Vessel operating expenses were $8.1 million, which corresponds to a daily rate per vessel of $14,824 in the three-month period ended June 30, 2023, as compared to $7.4 million, or a daily rate per vessel of $13,588, in the corresponding period of 2022. This increase is mainly attributable to higher maintenance and crewing costs on the Partnership’s vessels in the three- month period ending June 30, 2023 compared to the corresponding period in 2022.
Adjusted EBITDA (a non- GAAP financial measure) for the three months ended June 30, 2023 was $23.0 million, as compared to $22.9 million for the corresponding period of 2022.
Net Interest and finance costs were $9.2 million in the three months ended June 30, 2023 as compared to $6.0 million in the corresponding period of 2022, which represents an increase of $3.2 million, or 53.3%, due to the increase in the weighted average interest rate in the three- month period ending June 30, 2023, compared to the corresponding period in 2022, which was partly counterbalanced by the reduction in interest bearing debt as compared to the corresponding period of 2022.
For the three months ended June 30, 2023, the Partnership reported basic and diluted Earnings per common unit and Adjusted Earnings per common unit, (a non- GAAP financial measure) of $0.31 and $0.08, respectively, after taking into account the distributions relating to the Series A Preferred Units and the Series B Preferred Units on the Partnership’s Net Income/Adjusted Net Income. Earnings per common unit and Adjusted Earnings per common unit, basic and diluted, are calculated on the basis of a weighted average number of 36,802,247 common units outstanding during the period and in the case of Adjusted Earnings per common unit after reflecting the impact of the non-cash items presented in Appendix B of this press release.
Adjusted Net Income, Adjusted EBITDA, and Adjusted Earnings per common unit are not recognized measures under U.S. GAAP. Please refer to Appendix B of this press release for the definitions and reconciliation of these measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.
Amounts relating to variations in period on period comparisons shown in this section are derived from the condensed financials presented below.
(1) Average daily hire gross of commissions represents voyage revenue excluding the non-cash time charter deferred revenue amortization, divided by the Available Days in the Partnership’s fleet as described in Appendix B.
Liquidity/ Financing/ Cash Flow Coverage
During the three months ended June 30, 2023, the Partnership generated net cash from operating activities of $8.8 million as compared to $8.2 million in the corresponding period of 2022, which represents an increase of $0.6 million, or 7.3% mainly as a result of working capital changes.
As of June 30, 2023, the Partnership reported total cash of $52.9 million. On March 27, 2023, the Partnership, in agreement with all lenders of the $675 million credit facility, made a voluntary prepayment of $31.3 million. An amount equal to the abovementioned prepayment was released from the cash collateral account in order to make the prepayment. The Partnership’s outstanding indebtedness as of June 30, 2023 under the $675 million credit facility amounted to $444.6 million, including unamortized deferred loan fees and $48.0 million, which is repayable within one year as of June 30, 2023.
As of June 30, 2023, the Partnership had unused availability of $30.0 million under its interest- free $30.0 million revolving credit facility with its Sponsor, Dynagas Holding Ltd., which is available to the Partnership at any time until November 14, 2023.
Vessel Employment
As of June 30, 2023, the Partnership had estimated contracted time charter coverage(1) for 100% of its fleet estimated Available Days (as defined in Appendix B) for 2023, 2024, and 2025.
As of the same date, the Partnership’s estimated contracted revenue backlog (2) (3) was $1.2 billion, with an average remaining contract term of 7.4 years.
(1) Time charter coverage for the Partnership’s fleet is calculated by dividing the fleet contracted days on the basis of the earliest estimated delivery and redelivery dates prescribed in the Partnership’s current time charter contracts, net of scheduled class survey repairs by the number of expected Available Days during that period.
(2) The Partnership calculates its estimated contracted revenue backlog by multiplying the contractual daily hire rate by the expected number of days committed under the contracts (assuming earliest delivery and redelivery and excluding options to extend), assuming full utilization. The actual amount of revenues earned and the actual periods during which revenues are earned may differ from the amounts and periods disclosed due to, for example, dry-docking and/or special survey downtime, maintenance projects, off-hire downtime and other factors that result in lower revenues than the Partnership’s average contract backlog per day.
(3) $0.13 billion of the revenue backlog estimate relates to the estimated portion of the hire contained in certain time charter contracts with Yamal which represents the operating expenses of the respective vessels and is subject to yearly adjustments on the basis of the actual operating costs incurred within each year. The actual amount of revenues earned in respect of such variable hire rate may therefore differ from the amounts included in the revenue backlog estimate due to the yearly variations in the respective vessel’s operating costs.